Repo 105 refers to an accounting technique — described by Valukas as a gimmick that dated back to 2001 — that helped to temporarily lower the struggling bank’s apparent leverage by $50 billion.

The repo effectively allowed Lehman to park $50 billion of assets and liabilities off balance sheet, lowering its reported leverage at a critical time.

FRC spokesman Jon Hooper said the response from E&Y will help the watchdog determine whether the issues raised in the U.S. report were relevant to the broader auditing sector.

“We need to establish the facts at this stage. We are taking this very seriously and we will not brook any delay in this matter,” Hooper said.

Valukas said Ernst & Young’s lead partner on the Lehman audit “became comfortable” with the use of Repo 105 to lower apparent leverage.

Lehman transferred assets to its London unit where the bank could get lawyers at Linklaters to sign off on the deals.

Some in the accounting industry find it hard to believe that Lehman was alone in the banking sector using Repo 105.

The FRC’s probe will underscore EU worries about concentration and competition in the sector as the Big Four check the books of nearly all the world’s listed blue chips.

Britain and other EU states use International Financial Reporting Standards (IFRS), rules that have been adopted in over 100 countries but the United States has yet to fully decide if it will follow suit.

An analysis of Repo 105 showed it would not be permitted under IFRS rules, an accounting expert said.

IFRS rules are drawn up by the International Accounting Standards Board whose chairman, David Tweedie, may be quizzed on the Lehman findings when he meets with EU finance ministers on Tuesday.